1) No integration. Users logon to Azure and on-premise AD separately with different sets of credential.

2) Directory sync (DirSync) only: On-premise AD user accounts and password hashes are synced to Azure. Users logon to both using same set of credential. No Single Sign-On (SSO) between AD and AAD. In other words, users have to authenticate twice, even though they may use the same set of user ids and passwords.